What the Rich Get Out of Debt Relief

What do the rich gain from debt relief?

Not to say that it is bad that the wealthy nations of the world have agreed “to stop demanding payments from 18 of the poorest countries in Africa” (Under the Same Sun), but why did they do it? Why is Paul Wolfowitz on the same side of this issue as Archbishop Njongonkulu Ndungane, the patron of Jubilee 2000? I can think of four reasons.

  1. Popular pressure/it looks good. The rich get to appease a popular movement that has gathered steam for over a decade and appear benificent at the same time.
  2. Subsidies to banking. It looks like part of the debt cancellation plan includes rich governments paying off the creditor institutions (IMF, World Bank, and the African Development Bank). According to the Financial Times,

    The agreement, covering $40bn (£22bn) of debts of 18 heavily indebted poor countries (HIPC) with the World Bank, the International Monetary Fund and the African Development Bank, will cost rich countries $1.2bn a year for the next three years…As part of the weekend deal the industrialised nations promised more resources for the World Bank and African Development Bank for the next three years and made political commitments thereafter.

    This could be a quick way for the banks to get some cash up front, which of course will be re-loaned in due time.

  3. It gives the rich more leverage with the poor. An opinion piece in The Nation (Nairobi) by James Shikwati argues that both debt and debt relief are a kind of assertion of dominance of the poor by the rich.

    Each country is assigned a certain value, for instance, the industrialised counties have the highest value and the poor nations have the lowest value. With this approach, only the wealthy nations can salvage countries that have low value. To validate this argument, poor country elites are normally trained to believe in foreign support as the main way to get out of underdevelopment.

    (Shikwati runs the Inter-Region Economic Network, a group that promotes an interesting mix of neoliberal free market fundamentalism and anti-imperialism.)

  4. Coopting the popular movement. Since the anti-corporate globalization movement has been so successful in using odious debt to highlight financial domination of the poor by the rich, some neo-liberals think that eliminating the debt would take away a major propaganda crutch of the left. (As in, “we cancelled the debt, what more do you want?”)

    The weblog “Exploit the Worker” (this is the real title) by Jonathan Dingel has a very serious and thoughtful piece from the pro-capitalist perspective on why debt forgiveness should be “a free-market manifesto.” Dingel says that,

    Should market liberals fail to prioritize the issue of debt cancellation, anti-globalization activists will retain a powerful weapon in their arsenal, for the problem of indebtedness attracts many compassionate persons to their cause…Diffusing the anti-globalization movement by agreeing with them on common causes would be an excellent way to promote global welfare while preventing the anti-capitalist Left from doing economic damage.

What does the “anti-capitalist Left” want that might do “economic damage”? And who would suffer the damage? I leave it to my readers to figure that one out…

One thought on “What the Rich Get Out of Debt Relief”

  1. 1. Argentina’s successful reassertion of the right of sovereign default has presumably sent shock-waves through the international finance community.

    2. Initial U.S. crusading against Iraq’s “odious debt” reopened a space for serious discussion of the concept (and of U.S. hypocrisy). — maybe

    3. Debt-servicing is growing increasingly onerous, not to say impossible, thus increasing the temptation to default. With Argentina’s example before them, many leaders might convert the occasion of default from economic failure to a potent declaration of political principle, possibly much to be appreciated by the poor masses who have been forced to pay user fees for education and denied health care because of debt servicing.

    4. Acting preemptively to “forgive” debt allows the imposition of conditionalities and, as you say, the assertion of control by the rich just at the time assertions of independence by the poor are becoming most likely.

    Above and beyond all that, there has been a change in the global discourse that, perhaps a bit arbitrarily, we can date to roughly the April 16, 2000 protests in DC against the IMF and WB (although, of course, the work done to build to that point by institutions in the Global South long predates it).

    Unbending adherence to debt servicing even for poor and AIDS-ridden countries has now become a threat to the legitimacy of the global capitalist system — and when a system starts to lose legitimacy, change can usually not be stopped purely by coercion. Similarly, the militant rhetorical unconcern for the poor of the 1980’s and 1990’s cannot now be continued for the same reasons.

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